MICHAEL ROWLAND:
Treasurer, good morning to you. We're talking about this pantomime, we've seen it play out three times this year; the RBA has cut rates by a quarter of a percentage point, the big banks say 'yeah, nah, we're not going to do that, pass it on in full.' The Government wags its fingers, but nothing really changes. Why do we need an inquiry? We know why the banks are doing this.
JOSH FRYDENBERG:
Well, we need all the information at hand about the cost of funds of the banks, about the difference between what they charge existing customers and new customers. And in terms of why they are not passing on these rate cuts in full after the RBA has said their cost of funds has come down significantly and they should be passed on. As you say, the Australian public, Michael, is sick and tired of the merry dance where the RBA has cut rates three times in recent months, the Government and the RBA itself have called on the banks to pass them on and the banks have just ignored that advice and that call.
MICHAEL ROWLAND:
The banks insist contrary to what the RBA is saying that their funding cost is still large, their interest margins are still tight. Who is right here? Somebody is not telling the truth.
JOSH FRYDENBERG:
Well, it's true that the banks have a number of source of funds. They get money from depositors, around half of the money that comes in is from depositors, but someone who has got money on a term deposit may be only getting 1.4 per cent at present. Then they get money which is reference to the cash rate, which we know is at a record low at 0.75 per cent. But there are advertised standard variable rates that can be close to around 5 per cent, at around 4.8 per cent today. The Australian public are asking are they actually getting the best possible deal from their banks. We've got a $2 trillion residential mortgage market, the big four banks have locked up about 80 per cent of that market and we need the ACCC to use its particular powers to compel documentation to lift the hood and to get to the bottom of this issue.
MICHAEL ROWLAND:
Have you told the banking chief executives about this inquiry and what has been their response?
JOSH FRYDENBERG:
I actually did call the CEO's of the big four banks yesterday and told them that this could actually help clear the air and this was an opportunity for them to explain to the regulator why they haven't been passing on the rate cuts on in full and how they balance the competing needs of shareholders and customers and depositors and borrowers. But, at the same time, they're defending their patch and we'll continue to get the best possible deal for the consumer.
MICHAEL ROWLAND:
Okay. Looking forward, the ACCC reports back to the Government saying that the banks still won't do this because they still argue their interest rate margins are tight, their funding costs are large. What are the options available to the Government? I know you've ruled out legislating for the banks to pass on rate cuts in full. What about whacking up the bank levy on the banks?
JOSH FRYDENBERG:
No, we're not going to do that…
MICHAEL ROWLAND:
Why not?
JOSH FRYDENBERG:
Because higher taxes is not the solution to every question as the Labor Party seem to think…
MICHAEL ROWLAND:
It would concentrate the banks' mind though, wouldn't it?
JOSH FRYDENBERG:
No, what would concentrate the banks mind is a competitive and fairer market place and that's why we want to empower consumers with more transparency in the bank reporting, more information, but also the ability that they will now have under the Consumer Data Right which is legislation that recently passed the Parliament to securely transfer their information, whether it's the number of accounts that they hold, the type of accounts they hold, the balances on their accounts as well as their transaction history to another provider of credit in order to secure a better deal for them.
MICHAEL ROWLAND:
That open banking legislation is designed in theory, as you say, to make transferring banks much easier. What about, for instance, forcing banks to waive exit fees to help facilitate that process?
JOSH FRYDENBERG:
Well, there has been a ban on exit fees. What we are focused on is reducing the paperwork between the banks. So reducing the red tape burden and using new technologies, Michael, that allow consumers to benefit from more offers in the marketplace. You see, there are a number of smaller lenders that have actually wasted no time in passing on these rate cuts on in full and if the big four banks had passed on these seventy-five basis point rate cuts, then somebody with a $400,000 mortgage would be more than $500 a year better off in lower interest payments.
MICHAEL ROWLAND:
Federal Parliament is about to discuss yet again, the so-called 'Big Stick' legislation, the Government is waving in the general direction of the energy companies; threatening divestment and breaking them up. What about applying the same tactics towards the banks?
JOSH FRYDENBERG:
No, we're not going down that path. The energy market has seen a failure in recent times. There's been the recommendations of the ACCC for a series of new powers that we have introduced into the Parliament. Divestment is obviously the means of last resort, there is a graduated series of measures that start with warnings, infringement notices, fines. We can direct contracting orders to be made as well. But ultimately, only on the advice of the ACCC and after the Federal Court has ruled and the Treasurer has recommended could you go down that extreme path of divestment. We'd hope we would never need to go down that path.
MICHAEL ROWLAND:
Okay, a couple of other issues before we leave, Treasurer. The Prime Minister was in Tamworth yesterday helping the New South Wales Government announce a refurbishment, an enlargement, of a big dam there. I know the Federal Government has announced a series of drought measures already, sadly the drought is showing no sign of breaking. So, would the Federal Government be prepared to sacrifice the surplus looking forward if it meant helping farmers and businesses?
JOSH FRYDENBERG:
Well, they're not mutually exclusive; it's not an either or proposition. We're committed to delivering a surplus and, as you know, we've delivered the first balanced budget in eleven years and that's through targeted spending, but more importantly, getting people off welfare into work. When it comes to the drought as the Prime Minister has said, Michael, it is the first call on the Budget and we have announced significant measures whether they're immediate support through the Household Assistance packages or whether it's through water infrastructure announcements like yesterday. This is $1 billion that will be equally contributed to by the Federal Government and the New South Wales Government to build the first dam in New South Wales in some thirty years and the people of Tamworth will benefit as well as more broadly across that state. This is really important water infrastructure that is coming at a very important time for that region which, as you say, has been devastated by drought.
MICHAEL ROWLAND:
And finally, Barnaby Joyce is calling on the Federal Government to do more to stop the potential extradition of Julian Assange from the UK to the US once he serves his jail time in the UK. Is that something the Government will consider?
JOSH FRYDENBERG:
Well, look, we'll provide the normal consular assistance as you would expect the Australian diplomatic service to do for Australian citizens. He ultimately will face the justice for what he has been alleged to have done but that is a legal process that will run its course. But we will continue as a Government to provide him with the appropriate consular service.
MICHAEL ROWLAND:
Okay, Treasurer Josh Frydenberg at Parliament house. Thank you so much for joining us.
JOSH FRYDENBERG:
Thank you.